As Algeria looks to curb its imports in the face of declining state revenues, speeding up development of the agriculture sector has become a pressing goal. As the country seeks to diversify away from hydrocarbons, the sector is well placed to contribute.
Agriculture accounts for around 13% of GDP and employs some 11% of the country’s active population. Output improved between 2007 and 2017 thanks to efforts to clear some of the bottlenecks that have traditionally held back the sector’s development, such as legislation, land ownership and financing. Moreover, the economic pressure resulting from the fall in hydrocarbons revenues is leading authorities to reconsider the importance and structure of the sector, and gradually adopt new approaches such as intensive and large-scale farming. The government is targeting enhanced private investment to achieve these goals.
Development Plan
The Agricultural and Rural Renewal Policy (Politique de Renouveau Agricole et Rural, PRAR) is the main scheme overseeing the development of the sector. Launched in 2008, the strategy aims to boost the level of foreign direct investment, increase output and improve market structure. As a result, the sector’s total value added – fisheries and forestry output included – increased by 116% between 2009 and 2015 to reach AD2.01trn (€16.7bn), or 12% of GDP, according to the National Statistics Office (Office Nationale des Statistiques, ONS). In June 2016 a fresh impetus to the policy was brought about by the launch of the Felaha 2019 initiative by the Ministry of Agriculture, Rural Development and Fisheries. The strategy has a particular focus on private investment, consolidation and innovation, and it targets average annual growth of 5%, AD4.3trn (€35.7bn) in output value and 1.5m new jobs by 2019. It also aims to cut food imports from $9.3bn in 2015 to $2bn and double the value of exports to $1.1bn by 2019.
Performance
While agricultural output has made headway since the introduction of PRAR, the sector’s performance since 2016 has been hindered by restrictions on imports – on which the country remains dependent – and a decrease in public expenditures. In 2016 the sector’s value added grew by 1.8%, down from 6% in 2015, according to the ONS.
Indeed, as hydrocarbons revenues have almost halved since 2014, and foreign currency reserves have shrunk as a result, Algeria has had to tighten its import allowance. In early 2017, for instance, in a bid to slow down food imports, the government increased the value-added tax (VAT) applied to some cereals and animal feed products from 7% to 9%. These included grains such as corn and barley, goods that have traditionally weighed heavily on the food import bill. Cereals in general make up an important share of this bill. In 2016 the country imported $2.7bn worth of cereals (wheat, durum, corn and barley), down 21% compared to 2015 on the back of lower global grain prices. In terms of volume, the decrease was less significant, falling by 3.3% to 13.2m tonnes.
Cereal imports maintained this trend in 2017, decreasing by 0.72% to $2.11bn in the end of September 2017 from $2.13bn in the same period in 2016. Still, the overall food import bill increased during the same period by 6.4% to $6.5bn, up from $6.11bn, according to the Centre for Customs Data and Statistics. The rise was mainly driven by a 58.2% increase in the import value of dairy products, vegetables (27.8%), sugar and confectionary (22.1%), and tea and coffee (8.9%).
In October 2017 the government announced that it planned to cut the total import bill from $41bn at the end of 2017 to $30bn in 2018. However, details as to whether and to what extent such adjustments would apply to food imports had yet to be unveiled at the time of publication. This move, compounded by the fluctuations in supply witnessed in some segments since 2015 on the back of government efforts to curb imports, could help direct focus towards the need to stimulate local upstream and downstream activities.
Domestic Output
Thanks to PRAR, Algeria now produces a wider range of produce for domestic consumption, with a good level of output achieved particularly in maraîchage, or market gardening. Vegetable output increased by 13.4% between 2009 and 2014. Potato production, in particular, has been significant, reaching 5m tonnes in the 2016/17 harvest. The potato harvest is expected to total 6.7m tonnes in 2019, and the country is targeting exports of approximately 70,000 tonnes.
Such ambitions are likely to be supported by a shift observed in recent years to adopt more intensive farming methods (see analysis). This move is essential in a sector that has traditionally been dominated by smallholder farmers operating on areas of less than 10 ha, and in a country that is striving to achieve food self-sufficiency in the face of a growing population and volatile commodity prices.
Evolving Legislation
As part of efforts to diversify the economy, incentives to boost private investment in the non-hydrocarbons sector have gradually been introduced. A new Customs Code approved by the parliament in early 2017 bodes well in that regard. With bureaucracy and administration long deemed an impediment to investment in Algeria, the new code aims to modernise and streamline procedures, in line with international Customs conventions.
Such changes should come to support the New Growth Model strategic vision launched by the government in July 2016, which targets a 6.5% annual growth rate in non-hydrocarbons GDP over the 2020-30 period (see Economy chapter).
According to Ismail Chikhoune, president and CEO of the US-Algeria Business Council, the 2018 Finance Law is also expected to bring about further incentives to encourage foreign investment, though the 49:51 foreign investment cap is likely to remain untouched. “The 49:51 foreign investment cap does not constitute a major obstacle to investment. It helps generate value addition, and outside of key strategic sectors there is room to relax the policy somewhat,” he told OBG.
Private Investment
One of the major trends witnessed in the sector since 2015 is the gradual emergence of large-scale farming. Though still in its infancy, several deals with local and foreign investors have been struck, such as the joint venture between the American International Agriculture Group (AIAG) and Algeria’s Lacheb Group, established in 2015, as well as the more recent accord from early 2017 involving AIAG and Algerian Tifra Lait (see analysis). Both projects are particularly attractive in that they target development at different levels of the value chain, therefore fostering better integration between upstream and downstream activities. “Following a number of adjustments and initiatives, and with financial support from the government, private investors are settling into the sector at a reasonable pace,” Amine Bensemmane, president of GRFI Filaha Innove, told OBG.
The private sector is also being called upon to develop pilot farms, mostly located to the north of the country, with the view of boosting domestic output in segments ranging from fruit and vegetables, to livestock and animal feed. Totalling 178 farms spread over 200,000 ha, a number of them have been under development in the form of public-private partnerships since 2013. Further farms are currently in the planning stages, according to local media reports.
Consolidating Activities
One of the main goals outlined in the PRAR consists of streamlining activities across the entire value chain through better organisation and a restructuring of the sector. To some degree, the country has seen progress on that front, with a number of crop-specific trade committees emerging in key segments, such as cereals and dairy, to facilitate collaboration between the state and sector operators. The development of such platforms is also intended to enhance integration of upstream and downstream activities, and modernise agriculture through the uptake of modern equipment and technology.
However, according to Bensemmane, while much has been achieved in this regard, especially in terms of output targets, the country still has some headway to make. Farmland development is one of the most pressing issues to be addressed. The requirement to develop cooperatives to accompany the expansion of large-scale and intensive farming projects is another example suggested by Bensemmane.
Access To Land
Since 2008 Algeria has allowed state-owned land to be leased to private developers for agricultural purposes. However, the authorities have had to intervene and crack down on illicit usage. Local media reported in October 2017 that up to 853,000 ha of land had been allocated since 2008, and yet only 31% of the total land area had been developed into viable farming projects.
To that end, the government is looking at expropriating misused land and diverting it to more serious investors. As Africa’s largest country, and with an estimated 42m ha of agricultural land, there is certainly room to expand production, which currently occupies around 8.5m ha of land. While the country has sought to ease access over the years, land ownership issues, particularly to the north of the country, continue to impede development, limiting the potential for a long-term vision and investments.
Irrigation
Algeria is looking to increase the coverage of its modern irrigation networks by up to 2m ha in the coming years, in line with its goal to boost sector output. The country is also looking to promote efficiency and limit the quantity of water going to waste through modern irrigation techniques, such as drip irrigation, as well as water recycling. While investments have been made to that end, particularly since 2008, the sector continues to rely heavily on rainfall for its water needs, estimated at 6.7bn cu metres a year. Climate change and unpredictable weather conditions make it all the more challenging for policymakers and investors alike; however, the planned expansion of the network should help improve future visibility.
Irrigation to the south of the country is being expanded to accompany recent developments, with more than 2m sq km currently under irrigation and another 1m sq km being equipped. In a bid to supply both cities and agriculture with water, Algeria has also invested in dam construction, bringing their total number from 30 in 2000 to around 100 today.
Cereals
A larger irrigation network is most likely to benefit the cereals industry, which has been impeded by sporadic access to irrigation water. The cereals yield totalled 3.5m tonnes in 2016/17, a slight increase from the 3.4m tonnes produced in the previous growing season on the back of unfavourable weather conditions experienced in multiple producing wilayas (provinces). Under the Felaha 2019 strategy, the goal is to reach 6.98m tonnes in cereal output by 2019, with the aim of eliminating all durum imports, and bringing cropped areas under irrigation from its current 250,000 ha to 600,000 ha. Large-scale projects established in the south of the country should come to support the industry’s ambitions (see analysis).
In line with its objectives to expand production, storage capacity is also being reinforced, with 10 metal silos acquired in 2017 and an additional two concrete silos due for delivery in 2018.
Animal Feed
On the back of insufficient domestic output, Algeria continues to satisfy a significant share of its needs for animal feed through imports, notably, of corn and barley. In 2016 corn imports stood at some 4.11m tonnes while those of barley reached 879,214 tonnes, costing the country more than $922m. As with other cereals, efforts are under way to boost local output through large-scale integrated projects, particularly in the south of the country, allocating a share of their investment for the development of the segment (see analysis). One of the expected outcomes from such developments is a noteworthy decline in the cost of animal feed. “Some 80-90% of the cost of production in poultry farming, for instance, is swallowed up by purchases of animal feed,” Salah-Eddine Abdessemed, CEO of Ceva Santé Animale, told OBG. Nonetheless, the issue is likely to persist for some time as the government seeks to protect finances in the face of declining hydrocarbons revenues, limiting imports on animal feed and various other grains since the start of 2017 through VAT hikes and various import restrictions. Delays in granting licences for the import of corn, for instance, caused supply disruptions on the local market at the beginning of the summer of 2017 and caused prices for the good to soar.
However, according to local media reports, plans to phase out the VAT applied to animal feed in 2018, including on corn, should help alleviate the burden and support local production.
Dairy
Algeria consumes around 5bn litres of milk a year, but local output stands at some 1bn litres. Consequently, the country has to import milk to meet local demand. In 2016 the milk import bill amounted to $849.2m. Though down 18.6% compared to a year earlier, milk – particularly powdered milk – continues to make up a notable share of the broader food import bill. To that end, Algeria is striving to develop its local fresh milk industry, which has so far been hampered by factors including nutrition and farming conditions. “Output is poorer that in other countries,” Chikhoune told OBG. “For instance, a dairy cow in Algeria returns between 11 and 15 litres per day, against 22.5 litres in Europe and 32 litres in the US.”
To encourage investment in the segment and reduce dependence on imported powdered milk, the government reviewed its subsidies for milk production in 2016. Under the Felaha 2019 plan, the authorities are looking to both increase the share of fresh milk that is produced locally as well as end imports of powdered milk that are destined for dairy-derived products by 2019, saving up to $750m per year. Plans to increase the production of animal feed bode well in that regard, combined with the ambition to foster enhanced integration in the segment.
Agri-Business & Technology
Agri-business is an important industrial contributor to GDP, accounting for 8.6% in 2016. While the PRAR helped stimulate investments in the segment, it remains heavily dependent on imported raw materials due to inadequate local supply, and a lack of integration between upstream and downstream activities.
However, with the government looking to slash its import bill, efforts will need to be deployed to enhance local agricultural output, and foster collaboration between farmers and the processing industry. Integrated projects such as the US-Algerian joint venture under way in the south provide a good example, with plans to raise dairy cattle and produce animal feed part of the same development.
Other market players such as Cevital and Benamor have also sought to invest in the upstream sector over the years in order to meet their own needs and expand their activities along the value chain. In this regard, farmland consolidation is a pressing matter to be addressed in order to help improve productivity and develop the economies of scale required to meet the industry’s needs. While the sector still has some way to go before it can start sourcing raw materials locally, the industry has nonetheless seen some progress, with certain subsectors substituting imported inputs with locally produced goods, such as in the yoghurt industry, where demand for candied fruit is for the most part now met domestically.
Outlook
While the Algerian economy has been shaken in recent years by the repercussions of the fall in oil prices and their subsequent impact on government revenues, the agriculture sector has registered steady growth. This expansion has continued steadily, despite the adjustments made to limit imports and the review of some of the subsidies applied to foodstuffs. With a population of over 40m, there is certainly room for expansion from an investor’s perspective at a time when domestic production and value added are key to strengthening the economy and achieving food self-sufficiency. The move towards large-scale farming in partnership with foreign investors should help bolster these ambitions, and potentially drive up the quality and exports of locally produced goods.
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